If over a period of 3 months you use an overdraft more than 50% of the time, then this is called ‘overdraft repeat use’. The Financial Conduct Authority (FCA) has introduced some rules to help prevent customers from having to rely on their overdraft and avoid interest charges.
Why should you try to avoid overdraft repeat use?
Overdrafts are meant for short-term borrowing. For example, if you need to buy groceries and won’t be paid until the next day an overdraft can help you bridge the gap. Because overdrafts are only meant to help you cover expenses in the short-term, they usually charge a higher rate of interest than other ways of borrowing like a credit card or personal loan.
If you’re using your overdraft often, you may be paying a large amount in interest fees. To try reduce the amount you pay in interest, it’s worth looking at how you’re spending money and also other ways of borrowing.
Explore more: Overdraft repeat use FAQs
How do you know if your account is in repeat use?
If you’re an HSBC customer and your account is in repeat use, we’ll send you a letter to let you know and explain some options on how to reduce the amount of interest you’re paying. We’ll review how you go in reducing your debt and get in contact after 6 months.
If 12 months after sending the initial letter you’re still in repeat use, we’ll contact you again. To help prevent you getting into any further debt, we may reduce or suspend your overdraft limit.
How can you reduce your debt?
One of the first steps to getting your spending under control is to create a budget. This will look at your earning and your spending to help you identify where your money is going and where you may want to make changes.
Explore more: How to create a budget
Other steps you can take that may help:
- review your tax codes to ensure you're paying the right amount of tax
- look at your tax credits to see what you may be eligible for
- check what government benefits you may be entitled to
- review your utility bills to ensure you have good deals - you can use comparison sites to do this
Using tech and tools
Using online and mobile banking can help you keep close tabs on your spending.
If you’re an HSBC UK customer, you may find it useful to use a tool like Balance After Bills. It’s a feature in the HSBC UK Mobile Banking app that takes into account all of your regular bills and then shows how much you could have left over for spending.
Explore more: Managing your money with tech and tools
We’ve also set up text alerts to let you know when you go into or are due to go into overdraft so you can try avoid overdraft charges.
Finding what's best for you
To find out more about overdrafts or to see how much an overdraft could cost you over a period of up to 31 days use our overdraft cost calculator.
You may want to consider other borrowing options that may suit you like a credit card or personal loan. These may have a lower interest rate and help you set a repayment plan.
Where else can you get assistance?
There are a number of independent organisations who can provide help and give general advice about managing money.
You can find out about free independent money advisers in your area from:
The following helpline services can offer help and advice:
Further help with your finances
If you are experiencing financial difficulty, you can see more information about the services and options available.
Explore more: Money worries